ECON101 Lecture Notes - Lecture 9: Market Failure, Deadweight Loss

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2 Aug 2016

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Olivia Mesta

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ECON101 Full Course Notes

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Consumer and producer surplus continued (in a free market) Reminder total surplus is (value buyers are willing to pay) (value sellers are willing to sell for) Equity: distributing the income in an equal way: there are laws to help with that, it is a discussion of what is fair. Don"t want the cost to exceed the value to the buyers (increase in quantity) The equilibrium quantity maximizes total surplus: goods are produced by producers with lowest cost, maximizes cs and ps. Lesson from this chapter: leave the markets alone if they are working fine (no market failure), as they are most efficient when left alone. If there was a central planner (eg. in a communist regime) there is less efficiency: because they don"t know every sellers cost and every buyers wtb. Market power: a single buyer or seller than can influence the market price (eg. monopoly) Application the cost of tax (chapter 8)

Related Questions

Efficiency in a market is achieved when

a. social planner intervenes and sets the quantity of output after evaluating buyers willingness to pay and sellers' costs

b. the sum of producer surplus and consumer surplus is maximized

c. all firms are producing the good at the same low cost per unit.

d. no buyer is willing to pay more than the equilibrium price for any unit of the good.

chocolateantelope690

There are four buyers (Debu, Sumon, Aslam & Rakib) in the market. All of them want to buy a pizza. Debu is willing to pay 800/- taka for one pizza, Sumon is willing to pay 600/- taka for one pizza, Aslam is willing to pay 400/- taka for one pizza, and Rakib is willing to pay 200/- taka for one pizza. On the other hand, there are four pizza sellers in the market (Anup, Roni, Himel & Badal). Anup’s cost of producing one pizza is 200/- taka, Roni’s cost of producing one pizza is 400/- taka, Himel’s cost of producing one pizza is 600/- taka, and Badal’s cost of producing one pizza is 800/- taka. Based on all of this information, answer the following questions

Q1 Derive the demand schedule for pizza.

Q2 If the market price of one pizza is 450/- taka, what will be the market quantity demanded pizzas, and what will be the total consumer surplus?

Q3 If the market price of one pizza is 350/- taka, what will be the market quantity demanded pizzas, and what will be the total consumer surplus?

Q4 Derive the supply schedule for pizza.

Q5 If the market price of one pizza is 500/- taka, what will be the market quantity supplied for pizzas, and what will be the total producer surplus?

Q6 If the market price of one pizza is 900/- taka, what will be the market quantity supplied for pizzas, and what will be the total producer surplus?

Q7 Now, considering the demand and supply side of this pizza market, calculate the market quantity demanded and quantity supplied at 100/-, 300/- and 500/- taka. Which of these prices brings supply and demand into equilibrium?

Q8 What are the entire consumer surplus & producer surplus, and total surplus in this equilibrium?

pearporpoise596

True or False:

1. Consumer surplus is the buyer's willingness-to-pay minus the seller's opportunity cost of production.

2. If your willingness-to-pay for a hamburger is $3 and you paid $2, then your consumer surplus is $5.00

3. The opportunity cost of production for a seller includes the implicit cost of the seller's time.

4. The height of the supply curve at a selected quantity is the seller's opportunity cost of producing that marginal unit.

5. Total surplus (total well-being) is the seller's cost of production minus the buyer's willingness-to-pay.

6. The competitive market equilibrium outcome is efficient because it allocates the produced output to the buyers who place the highest value on the good

7. Producer surplus is the area above the supply curve and below the price.

8. The competitive market equilibrium outcome maximizes total surplus (total well-being)

9. Producing and consuming more of a good will always increase the total surplus(total well-being).

redelephant805

ECON101 Lecture Notes - Lecture 9: Market Failure, Deadweight Loss

ECON101 Full Course Notes

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